UNITED STATES
|
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED AUGUST 24, 2003 |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____ |
Commission file number: 1-1185GENERAL MILLS, INC.
|
| Delaware | 41-0274440 |
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
Number One General Mills Boulevard | |
| Minneapolis, MN | 55426 |
| (Mail: P.O. Box 1113) | (Mail: 55440) |
| (Address of principal executive offices) | (Zip Code) |
(763) 764-7600
|
Item 1. Financial Statements.
| Thirteen Weeks Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| August 24, 2003 | August 25, 2002 | |||||||
| | ||||||||
| Net Sales | $ | 2,518 | $ | 2,362 | ||||
Costs and Expenses: | ||||||||
| Cost of sales | 1,474 | 1,349 | ||||||
| Selling, general and administrative | 591 | 584 | ||||||
| Interest, net | 134 | 142 | ||||||
| Restructuring and other exit costs | — | 41 | ||||||
| Total Costs and Expenses | 2,199 | 2,116 | ||||||
Earnings before Taxes and Earnings | ||||||||
| from Joint Ventures | 319 | 246 | ||||||
Income Taxes | 112 | 87 | ||||||
Earnings from Joint Ventures | 20 | 17 | ||||||
Net Earnings | $ | 227 | $ | 176 | ||||
Earnings per Share – Basic | $ | .61 | $ | .48 | ||||
Average Number of Common Shares – | ||||||||
| Basic | 372 | 367 | ||||||
Earnings per Share – Diluted | $ | .59 | $ | .47 | ||||
Average Number of Common Shares – | ||||||||
| Assuming Dilution | 382 | 376 | ||||||
Dividends per Share | $ | .275 | $ | .275 | ||||
See accompanying notes to consolidated condensed financial statements.
2
| (Unaudited) | (Unaudited) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| August 24, 2003 | August 25, 2002 | May 25, 2003 | |||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | 565 | $ | 745 | $ | 703 | |||||
| Receivables | 1,047 | 1,059 | 980 | ||||||||
| Inventories: | |||||||||||
| Valued primarily at FIFO | 364 | 379 | 315 | ||||||||
| Valued at LIFO (FIFO value exceeds LIFO by | |||||||||||
| $27, $31 and $27, respectively) | 970 | 880 | 767 | ||||||||
| Prepaid expenses and other current assets | 169 | 131 | 184 | ||||||||
| Deferred income taxes | 195 | 226 | 230 | ||||||||
| Total Current Assets | 3,310 | 3,420 | 3,179 | ||||||||
Land, Buildings and Equipment, at Cost | 5,032 | 4,695 | 4,929 | ||||||||
| Less accumulated depreciation | (2,035 | ) | (1,935 | ) | (1,949 | ) | |||||
| Net Land, Buildings and Equipment | 2,997 | 2,760 | 2,980 | ||||||||
| Goodwill | 6,653 | 8,474 | 6,650 | ||||||||
| Other Intangible Assets | 3,620 | 90 | 3,622 | ||||||||
| Other Assets | 1,812 | 1,853 | 1,796 | ||||||||
Total Assets | $ | 18,392 | $ | 16,597 | $ | 18,227 | |||||
LIABILITIES AND EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Accounts payable | $ | 1,301 | $ | 1,328 | $ | 1,303 | |||||
| Current portion of long-term debt | 82 | 229 | 105 | ||||||||
| Notes payable | 1,364 | 3,269 | 1,236 | ||||||||
| Other current liabilities | 614 | 769 | 800 | ||||||||
| Total Current Liabilities | 3,361 | 5,595 | 3,444 | ||||||||
| Long-term Debt | 7,523 | 5,547 | 7,516 | ||||||||
| Deferred Income Taxes | 1,701 | 398 | 1,661 | ||||||||
| Other Liabilities | 1,098 | 1,097 | 1,131 | ||||||||
| Total Liabilities | 13,683 | 12,637 | 13,752 | ||||||||
Minority Interests | 300 | 299 | 300 | ||||||||
Stockholders’ Equity: | |||||||||||
| Cumulative preference stock, none issued | — | — | — | ||||||||
| Common stock, 502 shares issued | 5,698 | 5,743 | 5,684 | ||||||||
| Retained earnings | 3,204 | 2,643 | 3,079 | ||||||||
| Less common stock in treasury, at cost, shares | |||||||||||
| of 129, 134 and 132, respectively | (4,125 | ) | (4,273 | ) | (4,203 | ) | |||||
| Unearned compensation | (48 | ) | (57 | ) | (43 | ) | |||||
| Accumulated other comprehensive income | (320 | ) | (395 | ) | (342 | ) | |||||
| Total Stockholders’ Equity | 4,409 | 3,661 | 4,175 | ||||||||
Total Liabilities and Equity | $ | 18,392 | $ | 16,597 | $ | 18,227 | |||||
See accompanying notes to consolidated condensed financial statements.
3
| Thirteen Weeks Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| August 24, 2003 | August 25, 2002 | |||||||
| Cash Flows – Operating Activities: | ||||||||
| Net earnings | $ | 227 | $ | 176 | ||||
| Adjustments to reconcile net earnings to cash flow: | ||||||||
| Depreciation and amortization | 93 | 90 | ||||||
| Deferred income taxes | 61 | 40 | ||||||
| Changes in current assets and liabilities | ||||||||
| excluding effects of businesses acquired | (465 | ) | (37 | ) | ||||
| Tax benefit on exercised options | 17 | 4 | ||||||
| Pension and other postretirement activity | (15 | ) | (26 | ) | ||||
| Restructuring and other exit costs | — | 41 | ||||||
| Other, net | 13 | (18 | ) | |||||
| Net Cash (Used) Provided by Operating Activities | (69 | ) | 270 | |||||
| Cash Flows – Investment Activities: | ||||||||
| Purchases of land, buildings and equipment | (119 | ) | (94 | ) | ||||
| Investments in businesses, intangibles and affiliates, | ||||||||
| net of investment returns and dividends | (10 | ) | (38 | ) | ||||
| Purchases of marketable investments | (3 | ) | (4 | ) | ||||
| Proceeds from sale of marketable investments | 40 | — | ||||||
| Proceeds from disposal of land, buildings & equipment | 4 | — | ||||||
| Other, net | (25 | ) | (28 | ) | ||||
| Net Cash Used by Investment Activities | (113 | ) | (164 | ) | ||||
| Cash Flows – Financing Activities: | ||||||||
| Change in notes payable | 131 | (333 | ) | |||||
| Issuance of long-term debt | 75 | 4 | ||||||
| Payment of long-term debt | (104 | ) | (68 | ) | ||||
| Proceeds from minority investors, net | — | 147 | ||||||
| Common stock issued | 47 | 20 | ||||||
| Purchases of common stock for treasury | (2 | ) | (17 | ) | ||||
| Dividends paid | (102 | ) | (101 | ) | ||||
| Other, net | (1 | ) | 12 | |||||
| Net Cash Provided (Used) by Financing Activities | 44 | (336 | ) | |||||
| Decrease in Cash and Cash Equivalents | $ | (138 | ) | $ | (230 | ) | ||
| Cash Flows from Changes in Current Assets and | ||||||||
| Liabilities, Excluding Effects of Businesses Acquired: | ||||||||
| Receivables | (58 | ) | (35 | ) | ||||
| Inventories | (251 | ) | (203 | ) | ||||
| Prepaid expenses and other current assets | 15 | 26 | ||||||
| Accounts payable | (9 | ) | 120 | |||||
| Other current liabilities | (162 | ) | 55 | |||||
| Changes in Current Assets and Liabilities | $ | (465 | ) | $ | (37 | ) | ||
See accompanying notes to consolidated condensed financial statements.
4
(1) Background
The accompanying consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not include certain information and disclosures required for comprehensive financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. Operating results for the thirteen weeks ended August 24, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ending May 30, 2004.
These statements should be read in conjunction with the consolidated financial statements and footnotes included in our Form 10-K for the year ended May 25, 2003. The accounting policies used in preparing these consolidated condensed financial statements are the same as those described in Note One of our Form 10-K.
Certain amounts in prior-period consolidated condensed financial statements have been reclassified to conform with current period classifications. Certain expenses, amounting to $37 million in the first quarter of fiscal 2003, have been reclassified from cost of sales to selling, general and administrative expense to more appropriately categorize these expenses that are not clearly associated with production activity. In addition, certain items reported in the first quarter of fiscal 2003 as unusual items have been reclassified to restructuring and other exit costs ($41 million), and to selling, general and administrative expense ($14 million).
Stock-based Compensation Expense for Stock Options
We use the intrinsic value method for measuring the cost of compensation paid in Company common stock. This method defines our cost as the excess of the stock’s market value at the time of the grant over the amount that the employee is required to pay. Our stock option plans require that the employee’s payment (i.e., exercise price) be the market value as of the grant date. The following table illustrates the pro forma effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.
| 13 Weeks Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| In Millions, except per share data | Aug. 24, 2003 |
Aug. 25, 2002 | ||||||
| Net earnings, as reported | $ | 227 | $ | 176 | ||||
| Add: Stock-based employee compensation | ||||||||
| expense included in reported net | ||||||||
| earnings, net of related tax effects | 3 | 3 | ||||||
| Deduct: Total stock-based employee | ||||||||
| compensation expense determined under | ||||||||
| fair value based method for all | ||||||||
| awards, net of related tax effects | (14 | ) | (16 | ) | ||||
| Pro forma net earnings | $ | 216 | $ | 163 | ||||
| Earnings per share: | ||||||||
| Basic – as reported | $ | .61 | $ | .48 | ||||
| Basic – pro forma | $ | .58 | $ | .44 | ||||
| Diluted – as reported | $ | .59 | $ | .47 | ||||
| Diluted – pro forma | $ | .57 | $ | .44 | ||||
The weighted average fair values at grant date of the options granted in the first quarter fiscal 2004 and first quarter fiscal 2003 were estimated as $9.27 and $8.63, respectively, using the Black-Scholes option-pricing model.
5
(2) Restructuring and Other Exit Costs
In the first quarter of fiscal 2003, we recorded $41 million of restructuring and other exit costs associated with the closure of our St. Charles, Illinois plant. These costs primarily include severance and pension curtailment costs related to 264 employees and the write-down of $27 million of production assets that had a carrying value of $32 million.
(3) Debt
On August 11, 2003, we entered into a $75 million five year term (callable after two years) bank borrowing agreement. The floating rate coupon is one month LIBOR plus 15 basis points and interest will be paid on a monthly basis. This borrowing did not utilize any of our existing shelf registration. During the first quarter, we called $80 million face amount of medium-term notes with interest rates ranging from 7.18% to 7.28%.
As of August 24, 2003, approximately $4.0 billion remained available under our existing shelf registration statement for future use, which includes the unused portion of the Core Notes program.
On September 24, 2003, subsequent to quarter end, we sold $500 million of 2 5/8% fixed-rate notes due October 24, 2006. Interest on these notes is payable semiannually on April 24 and October 24, beginning April 24, 2004. Concurrently, we entered into an interest rate swap for $500 million notional amount where we receive 2 5/8% fixed interest and pay LIBOR plus 11 basis points. After giving effect to the issuance of these notes, approximately $3.5 billion remains available under our existing shelf registration, which includes the unused portion of the Core Notes program.
6
(4) Comprehensive Income
The following table summarizes total comprehensive income for the periods presented (in millions):
| Thirteen Weeks Ended August 24, 2003 | Thirteen Weeks Ended August 25, 2002 | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Pretax | Tax | Net | Pretax | Tax | Net | |||||||||||||||
| Net Earnings | $ | $ | $ | 227 | $ | $ | $ | 176 | ||||||||||||
| Other Comprehensive Income | ||||||||||||||||||||
| (Loss): | ||||||||||||||||||||
| Foreign currency | ||||||||||||||||||||
| translation adjustments | (13 | ) | - | (13 | ) | 15 | - | 15 | ||||||||||||
| Other Fair Value Changes: | ||||||||||||||||||||
| Securities | 6 | (2 | ) | 4 | 8 | (3 | ) | 5 | ||||||||||||
| Hedge derivatives | 5 | (2 | ) | 3 | (121 | |||||||||||||||